The Dark Side of the Mogambo

Total Fed Credit was up only
$1.7 billion last week, and foreigners only bought up only $311
million in US government and agency securities, which seems odd
that interest rates mostly fell, and the rate on 3-month T-bills
dropped to 3.6%, almost a full percentage point below the Fed
Funds rate.

And the
page at 321gold.com showed $32 billion in repos last
Thursday [Nov 8, 2007].

And it is not just us moron
Americans that are acting like corrupt scumbags, but the European
Central Bank is just as shallow, as we learn from Mr. Gonzalez-Paramo,
the ECB's "market operations" top dog. According
to the Financial Times headline, he says that the ECB is "ready
to take emergency action 'for as long as needed'".

Apparently, my scathing email
message ("What in the hell is 'for as long as is needed'
supposed to mean?") got through, because later in the article
he "clarifies" things by explaining that "To the
extent that money markets remain subject to tension, we will
stay there as long as necessary".

Tension? What the hell is "tension"?
Naturally, I became angry at this continual evasion, and I was
not surprised that my next email did not go through, seeing that
it was just one long, rude, obscene, angry, threatening and vaguely
homicidal message from the Very Dark Side Of The Mogambo (VDSOTM).

Part of the problem that necessitates
such meddling in the markets may be found in the essay "Is
Another Dot-Com Bust Imminent?" by Robert Morley and Richard
Palmer, and forwarded to me by JMR Terry L. The question and
concern is plain; are stocks high enough to crash and take the
economy with it? They explain, "If you try hard enough,
any number of reasons can be found to justify paying high prices
for stocks with little earnings (and sometimes there may be a
good reason). But the question is, why would so many choose to
when the economy is flashing clear warning indicators of trouble
ahead?"

I thought he was asking a question,
and I was already rising to my feet to helpfully explain that
a lot of really stupid people have been taken advantage of by
unscrupulous people, and these unscrupulous people still have
mortgages to pay, too, and children to send to college, and bills
to pay, and us stupid people have to continue to be fleeced so
that the unscrupulous amongst us can continue to pay their bills,
and how I blame the Federal Reserve for creating all the excess
money and credit, and how I blame the Congress for allowing them
to create all that excess money and credit, and how I mostly
blame the Supreme Court because they are the corrupt, lying,
thieving buttheads who always ruled that the Constitution does
not say what it clearly says about what money is, and what it
is to be made of, and how it is to be valued, and now we are
stuck with a fiat currency in the hands of a corrupt central
bank being used to grow the size an debt of the government, which
is the opposite of what was intended in the Constitution.

Since this is one of my favorite
harangues, you can imagine the look of horror on their faces
as they see me licking my chops in anticipation. They quickly
head me off and hurriedly interject the invitation, "Let's
recap."

And then, in a sudden avalanche,
they recite the long litany of problems, starting off with,
"The housing market is collapsing and the bottom is still
nowhere in sight. Foreclosures have doubled over the past year.
Subprime borrowing, which used to be over 10 percent of the total
market, has virtually dried up. Home inventories are rising while
home prices are falling like rocks across most of the country.
People are no longer able to use their homes like ATM machines
every time they refinance their mortgages."

By this time I am reeling,
but they unrelentingly go on, "Consumer spending is almost
sure to take a hit. The home construction industry is seizing
up, with thousands being laid off. The banking industry is being
walloped by a credit crunch that Federal Reserve chief Ben Bernanke
considers so serious that he almost immediately cut interest
rates. The banking sector is hemorrhaging. The biggest bank in
the United States reported a 57 percent drop in third-quarter
earnings. Bank of America, the second-largest U.S. bank, reported
a 32 percent drop in earnings. The leading U.S. savings and loan,
Washington Mutual, says it expects a 75 percent drop in profits,
while Merrill Lynch had to write down $5.5 billion in bad subprime
and leveraged-loan losses for June to September. Thousands of
people in the real-estate, mortgage lending and banking sectors
are being laid off."

And to show that this not entirely
news to anyone, they note that, as you would expect, "In
August, investments totaling a record-breaking $163 billion fled
the U.S., according to the latest Treasury Department figures.
For the first time since 1998, foreigners on balance sold U.S.
government treasuries. The dollar is at its lowest level ever.
The Canadian loonie is now worth more than the U.S. dollar. The
euro continues to rise against the dollar."

Then they stab me right in
the heart with the thing that I fear most; inflation in prices.
"Prices of commodities including wheat, corn, milk, oil,
gold and silver are all soaring-also not good news for consumer
spending or the economy. And, amazingly- in the face of
all this bad news -investors continue to buy U.S. stocks that
could well be significantly overvalued."

And notice that he does not
mention how bonds are so grossly overvalued, and how the system
of overlapping/incestuous/expensive governments is grotesquely
overgrown, too, all of which is because so damned much money
has been created by the central banks to finance all this additional
government debt, and all of these oceans of money had to end
up somewhere, and there is nothing else that CAN literally spend
or absorb that enormously much money! So naturally everything
is overpriced!

In short, things are starting
to get really weird out there. Perhaps Mike Whitney of
InformationClearingHouse.info sums it up best when he says "The
news is all bad. The nation's economic foundation is in shambles.
US credibility is shot. Bush and Greenspan have put us on the
road to ruin. Now their work is done. We're flat broke."

Flat broke? Yikes! I remember
the first time I told the family that we were flat broke, which
was bad enough what with all their whining and yelling, but made
all the worse by having to admit it was because of my own indolence
and stupidity, and then made even worse than that by having to
repeat the same thing week after week, until I finally had a
bellyful of their whining and complaining, and I finally got
up off of the couch, took a shower, and went out and got a damned
job, which at least shut them up for awhile.

So it is surprising to me that
I am looking out of the periscope of the good ol' Mogambo Bunker
Of Ultimate Refuge (MBOUR) and marveling that the world is not
actually in flames, and the idiots collectively known as "the
American public" are not out rioting in the streets.

Then I remember the old adage
that "ignorance is bliss", and then perhaps it all
makes sense again. Then I remember that I am pretty ignorant
about a lot of things, too, like interpersonal skills, compassion
and ordinary civility. Then I wonder why I am not blissful.
I figure it is a plot by the CIA. Or my hateful neighbors.
Probably Bob.

Richard Daughty
is general partner and C.O.O. for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
the better to heap disrespect on those who desperately deserve
it. The Mogambo Guru is quoted frequently in Barron's, The
Daily Reckoning
and other fine publications.